ESG Investing and Public Pensions: An Update

SLP#74

The brief’s key findings are:

  • Public pension plans have engaged in social investing since the 1970s in response to state mandates.
  • More recently, the plans themselves have embraced a “new” form of investing that incorporates environmental, social, and governance (ESG) factors.
  • ESG investing is based on the notion that taking account of non-financial factors will lead to better investment outcomes.
  • Some also believe ESG investing can further socially beneficial practices.
  • The evidence suggests, however, that social investing: 1) yields lower returns; and 2) is not effective at achieving social goals.
  • Hence, any form of social investing is not appropriate for public pension funds.